Shifting From, ‘Oh, Wow’ And ‘Too High’ To ‘Uh Oh’

A report from the New Orleans Advocate in Louisiana. “After years of rising prices, David Devillier saw his chance to get in on New Orleans’ real estate boom when he bought and restored a nearly 160-year-old Greek Revival double-gallery house a block off St. Charles Avenue. Devillier, who owns a construction company, bought the five-bedroom, 4½-bath house for $600,000, and he estimates he spent about the same amount on the renovations.”

“But after the house sat on the market for six months, Devillier recently dropped the asking price to $1.3 million, essentially his break-even point, giving up on a once-anticipated $200,000 profit. ‘We knew the prices went up quickly, and it kept going up and going up. You know it’s going to plateau, but I was hoping I could get this sold before it started coming back down,’ he said. ‘I mean, it’s expected that when it goes up that high, it can’t stay that high.'”

“Still, with the market tough to predict, Devillier is ready to cut his losses. ‘It’s not happening anymore, so it’s time to move on,’ he said.”

From The Bridge in New York. “Dramatic, desperate, or maybe both? To get the final 32 units sold at the 550 Vanderbilt condominium in Brooklyn, developed by Greenland Forest City Partners, uber-broker Ryan Serhant, of Million Dollar Listing fame, has alerted real estate brokers to a flash sale.”

“‘On this Sunday (December 2nd) we will have a 1-day, 20% OFF SALE from 11am – 4pm,’ Serhant wrote in a message to brokers this week, inviting potential buyers in for previews. If the flash sale might seem a stunt—would they really decline to offer discounts later?—a citywide slowdown in condo sales reflects a clear buyer’s market.”

“Recent quarterly reports by the real estate brokerages Corcoran and Stribling indicated sales slowing in pricier parts of Brooklyn. Warburg Realty cited ‘[o]ffers 20% and 25% below asking prices … a phenomenon last seen in 2009,’ though it suggested Brooklyn sales at prices below $2 million were reasonably healthy.”

The Dallas Morning News in Texas. “The Mark Twain in me would like to point out that the Dallas housing market isn’t dead. Rumors about the demise of the local home market are probably exaggerated. Having said all that, anyone trying to peddle a house knows the residential market this year has changed.”

“Houses are taking longer to sell. And in most cases there isn’t a line of buyers fighting to overpay for your property. That was last year and the year before. And after the boom in housing we’ve seen over the last few years, any kind of slowdown is likely to cause some anxiety for sellers.”

“Housing analyst Paige Shipp of Metrostudy Inc. says the sky is not falling. ‘Dallas-Fort Worth, the nation’s top new home market, is slowing from a frenzied, overheated pace to a more stable, normalized market,’ Shipp said. ‘D-FW was one of the first, if not the first, housing market to emerge from the downturn. Our market was hot, dare I say ‘overheated,’ since 2012.'”

“The D-FW area housing boom of the last few years is unlike almost any in the last 50 years. And if price increases hadn’t slowed, we’d be looking at a California-style housing crash soon.”

From SocketSite on California. “While the number of homes actively listed for sale in San Francisco peaked at a 7-year high of around 960 this past October and has since ticked down to 775 with typical seasonality in play, there are now 53 percent more homes on the market than there were at the same time last year and inventory remains at a 7-year seasonal high.”

“The number of homes on the market priced at under a million dollars in San Francisco is now running 53 percent higher on a year-over-year basis as well. And 26 percent of all the homes currently listed for sale in the city have undergone at least one price reduction, which is even with the same time last year.”

From Radar Online on California. “The price of Elizabeth Taylor‘s Beverly Hills mansion has been slashed by $4 million in order to attract a buyer, RadarOnline.com exclusively confirmed. The 7,761 sq. ft. home was placed on the market for $15.9 million in July 2018 but was lowered in November.”

The News Tribune in Washington. “By now you’ve likely run across a headline, a report or a passing reference to the cooling housing market. But the housing market — new-home construction and existing-home sales — isn’t just intricately tied to the economy, it is much of the economy, so what’s going on with housing speaks volumes about current conditions and trends.”

“It’s also the one economic signal — along with, perhaps, gasoline prices — that most Americans observe every day and can speak about knowledgeably. And that’s why, when the conversation turns to housing and the economy, the two-word summations of present conditions are shifting from, ‘Oh, wow’ and ‘Too high’ to ‘Uh oh.'”

“Maybe what we’re seeing in the data is just a temporary blip, a statistical anomaly, an adjustment to a market too hot for its own good, a signal of absolutely nothing of significance about the broader economy, and a few months from now everyone will be back to marveling at or complaining about the cost of homes in this region and what pricey real estate is doing to it.”

“But just to be safe, and prepared, a little worry and wariness wouldn’t be inappropriate about now.”

‘Housing analyst Paige Shipp of Metrostudy Inc. says the sky is not falling. ‘Dallas-Fort Worth, the nation’s top new home market, is slowing from a frenzied, overheated pace to a more stable, normalized market,’ Shipp said. ‘D-FW was one of the first, if not the first, housing market to emerge from the downturn. Our market was hot, dare I say ‘overheated,’ since 2012.’

“An inverted or down-sloped yield curve suggests yields on longer-term bonds may continue to fall, corresponding to periods of economic recession. When investors expect longer-maturity bond yields to become even lower in the future, many would purchase longer-maturity bonds to lock in yields before they decrease further. The increasing onset of demand for longer-maturity bonds and the lack of demand for shorter-term securities lead to higher prices but lower yields on longer-maturity bonds, and lower prices but higher yields on shorter-term securities, further inverting a down-sloped yield curve.”

It looks like the Fed has flipped from hawkish back to dovish. Wow, that was quick. Munchin has apparently been talking to bond traders, asking if they’d prefer a faster unwinding of the balance sheet as opposed to raising rates.

As has been talked about for years, the Fed has painted itself into a corner. If they don’t raise rates the stock market bubble is going to continue exploding to the upside, which will only serve to make a much larger, more painful crash.

A continuation of the lower rates will also prolong the “search for yield,” which is what has caused massive distortions in other asset prices (subprime auto loans, etc.)

Something has gotta give, because the world is tapped out on debt. This ginormous global debt bubble is shaking back and forth like a pressure cooker whistling on high with steam pumping out every orifice possible.

“Treasury Secretary Steven Mnuchin privately asked bond dealers and investors in October whether they want the Federal Reserve to tighten monetary policy by raising interest rates or through faster cuts in its securities portfolio, six people familiar with the matter said.

Mnuchin’s question could be seen as suggesting a way for the central bank to accomplish its goal of preventing a strong economy from overheating without triggering the ire of President Donald Trump, who has blasted Fed Chairman Jerome Powell for raising rates.

On Monday, Trump told the Wall Street Journal that “the Fed right now is a much bigger problem than China,” which is locked in a trade war with the U.S. He also seemed to widen his criticism of the Fed to include its ongoing balance-sheet reduction. “I don’t like what they’re doing,” the president said. “I don’t like the $50 billion.”

The Fed is currently reducing the bond holdings on its $4.1 trillion balance sheet by a maximum of $50 billion per month — $30 billion of Treasuries and $20 billion of government agency debt and mortgage-backed securities.

Paring the portfolio puts some upward pressure on long-term interest rates by adding to the supply of bonds that investors must absorb. It thus effectively tightens financial conditions and acts as a drag on economic growth, just as increases in short-term interest rates do.

But it’s much less visible and has attracted little attention outside of the financial markets since it was launched. Indeed, several Fed officials have said that their aim was to make the balance sheet unwind the equivalent of “watching paint dry.””

“Maybe what we’re seeing in the data is just a temporary blip, a statistical anomaly, an adjustment to a market too hot for its own good, a signal of absolutely nothing of significance about the broader economy, and a few months from now everyone will be back to marveling at or complaining about the cost of homes in this region and what pricey real estate is doing to it.”